Important Issues for Large School Operators, Part II: The Non-Compete Clause

Once your school passes about 200 active students or adds a second location, you need control systems, and the first of them is a written employment agreement signed before anyone starts full-time. The agreement should make clear that your students belong to the school, not to the instructor. A non-compete and solicitation clause mostly works by setting expectations up front and giving a departing employee reason to pause.

Key Takeaways

• A single school expanding beyond 200 active students, or branching into more locations, needs a larger instructional staff and formal control systems.
• Every employee, including part-timers, needs a written agreement covering expectations and compensation before hiring.
• Instructors teach at the owner’s request and for the benefit of the owner’s students; those students are not the instructor’s students.
• The solicitation clause runs three years after termination and covers students, instructors and staff members.
• Student lists and records are confidential trade secret information and may not leave the place of employment.
• A legal document mostly clarifies expectations and gives a disgruntled employee pause; ongoing communication and rapport is what actually minimizes turnover.

Why a Growing School Needs Control Systems

As a school operator, you will eventually begin to add staff and, as your school grows, that will likely not only involve hiring administrative support, but also adding assistant instructors and possibly even head instructors. As a single school expands beyond 200 active students, or as you branch out into a second, third or more locations, you will definitely need a larger and larger instructional staff.

As your staff expands, you need to begin to create and apply a variety of control systems, starting with an employee contract that’s executed prior to full-time employment of an individual. For my own Mile High Karate schools, there were several areas of concern that I felt the need to address right up front, in order to minimize hard feelings, misunderstandings or damaging activities down the road.

Whose Students Are They?

For each of my instructors, I make it clear that they are teaching at my request and for the benefit of my students — and those students are not their students. This is non-negotiable.

Prior to hiring any instructor (including part-timers), each employee needs a written agreement with you regarding expectations and compensation. Their employment contract will include the following language to insure that clarity up front:

The Solicitation Clause

Solicitation:

In the event the Employee’s employment with the Employer is terminated, with or without cause, at any time, the Employee specifically covenants and agrees that he/she will not thereafter, for a period of three (3) years after leaving the Employer’s employment, solicit the employer’s students, instructors or staff members, or those of the Employer’s successor, if any, with respect to any service or with respect to any product as are offered or sold by the employer, or its successor, either for the Employee’s own benefit or for the benefit of or as an Employee of any person, firm, school or corporation. Employee acknowledges that he/she has access to student lists and records and understands that student lists and records are confidential, trade secret information, and may not leave the place of employment for any reason or be used for reasons other to benefit the Employer in the regular course of business.

The Student Reimbursement Provision

Following termination of employment with Mile High Karate, Employee agrees to reimburse employer $1,000.00 per individual student (the approximate yearly revenue from each student) and to personally pay the existing balance(s), (if any), of each student’s contract with employer if the Employee accepts income for instruction or training from any individual or family who has been an enrolled Mile High Karate student within three (3) years prior to the Employee’s termination. This reimbursement will be due to the Employer whether the Employee teaches for the Employee’s own benefit or for the benefit of or as an Employee of any person, firm, school or corporation following the Employee’s termination of employment from the Employer. The Employee guarantees these payments if his/her new Employer accepts a former Mile High Karate student even if no direct benefits accrue to the Employee.

“For each of my instructors, I make it clear that they are teaching at my request and for the benefit of my students — and those students are not their students. This is non-negotiable.”

What the Agreement Actually Accomplishes

Now, keep in mind that a legal document is mostly used to clarify expectations upfront and to give a disgruntled employee “pause” before doing something that will permanently burn his/her bridge with you and hurt you both. Frankly, an employee moving “across the street” and trying to take your students with him or her often hurts them more than it hurts you.

In reality, ongoing communications and rapport is the only way to minimize turnover of employees and to help them move on in their career without hurting your business.

Frequently Asked Questions

Do martial arts instructors need a non-compete agreement?

Every employee, including part-timers, should sign a written agreement covering expectations and compensation before they are hired. The agreement should include solicitation language so there is no confusion later about students, instructors and staff.

How long should a non-solicitation period last?

The language used at Mile High Karate runs three years after the employee leaves, and covers soliciting the employer’s students, instructors or staff members for any service or product the employer offers.

At what point does a school need formal employment contracts?

As a single school expands past 200 active students, or as you open a second, third or more locations, your instructional staff grows and you need control systems. The employee contract is the first of them, executed before full-time employment begins.

Are student lists protected?

In this agreement, student lists and records are treated as confidential trade secret information. They may not leave the place of employment for any reason or be used for anything other than benefiting the employer in the regular course of business.

Will a non-compete clause actually stop an instructor from leaving?

No. A legal document mainly clarifies expectations up front and gives a disgruntled employee pause before burning the bridge. Ongoing communication and rapport is the only real way to minimize turnover.

Stephen Oliver, MBA, is a 10th Degree Black Belt and the Founder and CEO of Mile High Karate in Denver, Colorado.